Insurer's Attempt to Repeal Prop 103 Protection Will Crystallize Public Anger At Government

Santa Monica, CA -- Proposition 103 author Harvey Rosenfield called on Governor Davis to reject campaign contributions to his anti-recall effort from Mercury Insurance. The company, Rosenfield points out in a letter sent to the Governor today, is sponsoring legislation that would allow surcharges based on whether a consumer previously had insurance coverage, a direct violation of Proposition 103. Rosenfield urged Davis to reaffirm his opposition to the legislation, which the governor vetoed last year.

"You struck a blow on behalf of clean government and lower insurance premiums when you vetoed SB 841, only days after Mercury contributed $25,000 to your re-election campaign committee," Rosenfield wrote. "Members were emboldened to pass the bill after hearing, as we have from several different sources in recent days, that Mr. Joseph is boasting that he has your word you will sign SB 841 this year as well as another illegal Mercury bill, AB 1297… There is rampant speculation as well that Mr. Joseph will generously contribute to the campaign against the recall if you sign these bills."

SB 841 passed out of the Assembly Insurance Committee today only after a suspension of ordinary committee rules. Assembly Member Paul Koretz raised an objection to the bill on the basis it was a clear violation of Proposition 103, because the initiative cannot be amended by the legislature except to "further its purposes," but was not allowed to be heard before a vote was taken.

"In order to get SB 841 on your desk as quickly as possible, the Assembly Insurance Committee took the unprecedented step of calling the roll while the committee's only member to speak on behalf of the Constitution and the voters was still voicing his opposition," wrote Rosenfield. "

In the letter, Rosenfield recounts the long history of Mercury's attempts to sway lawmakers with large campaign contributions. Mercury has contributed over $1.2 million to politicians since 2001. Mercury has given $235,000 to Democratic Party committees, not including individual politicians since last October. The firm was also a major donor to former Commissioner Quackenbush.

Insurance Commissioner Garamendi, who refused all contributions from insurers during his campaign, opposes the Perata legislation, along with consumer groups and low-income representatives.). The bill, which is virtually the same as last year's proposal, has already passed the Senate and will be considered by the Assembly Insurance Committee Wednesday.

Rosenfield argued that if Davis were to switch positions from last year's veto, it would crystallize the growing public anger with government and the state's politicians.

"The public issue is not simply whether motorists will be required to pay premiums to cover the uninsured. Like last year, SB 841 has come to symbolize the power of money over public policy and all else in Sacramento. And like last year, only your consistent application of your executive powers can protect the public and the credibility of the governor's office. The importance of these principles, and the apparent perception among lawmakers that you will sign SB 841, requires your immediate action," Rosenfield wrote.

FTCR senior consumer advocate Douglas Heller's testimony in opposition to the legislation today included a list of 50 Californians whose insurance lapsed for different reasons and would be hurt by SB 841. Read the list.

Increasing numbers of Californians question the integrity and competence of California government. I write today to raise an issue that goes to the very core of their concerns.

Fifteen years ago, you joined me on the steps of the Capitol to announce your support for Proposition 103. One of its provisions forbids insurance companies from penalizing motorists who have not had prior insurance. Another provision, based on the California Constitution, forbids the Legislature from hostile amendments to the voter-approved law.

Now, the CEO of one insurance company, which has violated and continues to violate this law -- Mr. George Joseph of Mercury Insurance -- is sponsoring legislation to legalize his misconduct. Like SB 689, which you vetoed last year, SB 841, sponsored by Sen. Don Perata, would impose a massive surcharge on drivers who suffer a lapse in insurance coverage, or no prior insurance, in order to allow Mercury to give a small discount to drivers already insured with other companies.

This morning, in order to get SB 841 on your desk as quickly as possible, the Assembly Insurance Committee took the unprecedented step of calling the roll while the committee's only member to speak on behalf of the Constitution and the voters was still voicing his opposition. Members were emboldened to pass the bill after hearing, as we have from several different sources in recent days, that Mr. Joseph is boasting that he has your word you will sign SB 841 this year as well as another illegal Mercury bill, AB 1297 , which would allow Mercury's insurance sales force to engage in deceptive price advertising in violation of a state court ruling. According to these accounts, Joseph claims the bills are "wired" for your signature. There is rampant speculation as well that Mr. Joseph will generously contribute to the campaign against the recall if you sign these bills.

To pass SB 841, Mr. Joseph is trying to buy his way around the Constitution; the will of the voters; the rulings to enforce the law against Mercury and other insurance companies by Insurance Commissioners John Garamendi and his predecessor, Harry Low, who you appointed; the California courts, which are in the process of hearing cases brought against such violations; and your veto.

Since January 2001, Mercury Insurance has given $1.2 million dollars to more than 80 state lawmakers. Last year, SB 689 passed the Senate 30 votes to 0, and cleared the Assembly 62-11. After your veto of SB 689, Mercury gave $215,000 to a Democratic Party committee known as "California Voter Registration 2002," which got out the vote for Democratic candidates. In March, the insurance company donated $20,000 to "Moderate Democrats for California."

This is not the first time Mr. Joseph has employed his resources in such a fashion. Back in 1996, after Senate Democrats stopped a Mercury bill to undermine Prop 103's protections against ZIP-Code based insurance for the second year in a row, Joseph lashed out at then-Senate Pro Tempore Bill Lockyer by contributing $500,000 to the California Republican Party. Mercury gave $252,000 in 1995 and 1996 to one of then-Commissioner Quackenbush's campaign committees. During his administration, Quackenbush approved the illegal surcharge scheme that is once again on the table with this bill. In 2000, Mercury contributed another $50,000 to Commissioner Quackenbush just two weeks after he froze a Department action against the company for charging illegal fees. Mercury, Joseph, and Joseph's wife had previously contributed an additional $64,000 to Quackenbush's campaigns.

Mr. Joseph's unseemly showering of money in Sacramento last year on behalf of this legislation besmirched the already-dismal credibility of government and generated public outrage across the state. Editorials in the Los Angeles Times (attached) denounced the substance of the legislation, the process and its financing, questioning whether "lawmakers are embarrassed enough now to kill both these bad bills."

You struck a blow for clean government and lower insurance premiums when you vetoed SB 689, only days after Mercury contributed $25,000 to your re-election campaign committee. In your veto message to the Senate, you noted that: "California State Insurance Commissioner Harry Low has asked me to veto this measure because he believes it violates the intent of Proposition 103 and undermines the Department of Insurance's (DOI) pending regulations which cover the issue of persistency."

In its expectation of obtaining your signature on SB 841, Mercury is today already imposing the surcharge despite a California Department of Insurance regulation specifically forbidding the practice as a violation of Proposition 103. The impact of Mercury's defiant practice illustrates the wisdom of Proposition 103 in banning consideration of prior insurance in rate-making to keep as many Californians insured as possible: a male driver with a perfect record in your home zip code in West Hollywood pays $492 more per year to Mercury if he had a lapse in coverage or was previously uninsured, than if he had maintained continuous coverage with another company for the past 5 years.

We have no way to verify the accounts of Mr. Joseph's private promises or pronouncements regarding your position on this bill. Perhaps Joseph is trying to assure nervous lawmakers that if they vote to override the Constitution and the People, they will not be hung out to dry with another gubernatorial veto.

What is certain is this: nothing in the current legislation alters the conclusions you reached last year when you vetoed the bill. Indeed, the report prepared by Commissioner Low in response to your veto message shows widespread violations of the law and the Department of Insurance has ordered companies to comply with Proposition 103.

Equally certain is the public impression of corruption that will be massively reinforced if this bill becomes law. While the bill's many supporters -- on both sides of the aisle -- are working hard to articulate a justification for their vote in favor of this piece of legislation, no one outside the Capitol is under any illusions about what is going on here. This is about a powerful special interest willing to spend millions of dollars to pass legislation that favors it at the expense of the public. The public issue is not simply whether motorists will be required to pay premiums to cover the uninsured. Like last year, SB 841 has come to symbolize the power of money over public policy and all else in Sacramento. And like last year, only your consistent application of your executive powers can protect the public and the credibility of the governor's office. The importance of these principles, and the apparent perception among lawmakers that you will sign SB 841, requires your immediate action.

For these reasons, we respectfully urge you to reaffirm your opposition to this legislation and vow not to accept contributions to your anti-recall campaign from Mercury or Mr. Joseph.

This is a difficult and tumultuous time in our history. Californians already beleaguered by a poor economy, high utility bills and rising insurance premiums are watching closely to see if you will pull for them or for the likes of George Joseph and Mercury Insurance. I hope and expect that you will once again stand with the voters. It is really the only thing that matters.